Analysis and criticism of America's most prominent public intellectual and champion of Keynesian economics. I am part of the Austrian School of Economics, and I critique Krugman's writings from that perspective.

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Monday, December 26, 2011

Krugman's toxic environmentalism

Over the past several years, Paul Krugman has become extremely predictable in his columns. First, the mantra is, "Democrats good, Republicans bad," as though a decorated academic economist should have such a childish view of the world. (Anyone who disagrees with the Great One, according to Krugman, does so out of malice toward anything that is good.)

In economics, he tells us that government spending is the cure-all for all ills, and he has endorsed what essentially is a money-printing scheme by calling for the Fed to purchase U.S. Government paper directly on the primary market. (He cleverly claims that we are mistaken about "money printing," since the Fed mostly expands bank reserves. If the Fed were to directly monetize federal debt, as Krugman recommends, this WOULD be real-live printing that essentially would be no different than what has been done in places like Argentina and Bolivia.)

And then there is environmentalism. In his recent column, Krugman again presents his environmental views, which pretty much can be contained in the following statements:

Any statistics that the Environmental Protection Agency gives us regarding costs and benefits of new environmental regulations always are true, at least when Democrats control the White House;

All fossil fuels are evil and burning them always gives us net costs. There can be no exceptions to this viewpoint;

All government environmental regulations are good and necessary and anyone who questions them does so ONLY because he or she wants others to suffer and die. There can be no exceptions to this viewpoint.

Krugman's latest salvo deals with the new EPA standards for mercury and other toxins released by coal-fired power plants. Obviously, mercury is bad when absorbed by humans (all of us agree on that), so anyone who might question the latest from Obama's environmental chief, Lisa Jackson, does so because he or she wants children to suffer from mercury poisoning, or at least that is what Krugman is saying.

However, Krugman claims, don't take his word for it; no, the numbers, according to the EPA, tell the story:

The new rules would also have the effect of reducing fine particle pollution, which is a known source of many health problems, from asthma to heart attacks. In fact, the benefits of reduced fine particle pollution account for most of the quantifiable gains from the new rules. The key word here is “quantifiable”: E.P.A.’s cost-benefit analysis only considers one benefit of mercury regulation, the reduced loss in future wages for children whose I.Q.’s are damaged by eating fish caught by freshwater anglers. There are without doubt many other benefits to cutting mercury emissions, but at this point the agency doesn’t know how to put a dollar figure on those benefits.

Even so, the payoff to the new rules is huge: up to $90 billion a year in benefits compared with around $10 billion a year of costs in the form of slightly higher electricity prices. This is, as David Roberts of Grist says, a very big deal.

Actually, the cost that EPA gives is about $11 billion a year, although I will say that EPA is notorious for underestimating the costs and overestimating benefits. In this one, Krugman repeats the claim that just the "quantifiable" numbers regarding supposed gained future wages from children that won't suffer from mercury poisoning is an astounding $90 billion per year. Wow. One only can wonder at what kind of methodology the EPA used to come up with this fantastic figure.

First, the agency claims it KNOWS the future IQs of American children before and after the regulations. Anyone who believes this deserves to be sold the Brooklyn Bridge. However, it gets better. Not only does EPA know IQs, but it also claims to know exactly how much money these smarter children are going to make.

This is pure nonsense, for no one, no statistician, no economist, no biologist, no one can know what these numbers were, even if the underlying premise were true, that children were going to be smarter in the future because there will be less mercury in fish. That an academic economist is quick to showcase the numbers that have been politically-created says more about what Krugman is willing to swallow than the accuracy of these numbers themselves.

I can tell readers that I had my own experience with the EPA and its magic numbers. In 1991, I was doing research for a paper on the EPA and the 1990 Clean Air Act Amendments and came across a claim by the EPA that acid rain was killing more than 100,000 Americans each year, so that the proposed legislation would then effectively save more than 100,000 lives annually.

The late Warren Brookes also was researching those numbers, and he asked EPA officials where they had found such astounding numbers, and he was told that they came from researchers at the American Lung Association. Brookes then asked the ALA how it got those numbers, and ALA officials told him that they came from the EPA.

That's right; numbers that environmentalists were repeating in the media, and the media was repeating to Americans, had no official source at all. No one had done any such research; the numbers were created from whole cloth, but that did not deter the EPA and its allies from trumpeting them around the country.

Without looking into the methodology, all I can say is that those mercury numbers are highly suspicious, and the notion that we would be looking at $90 billion of ANNUAL benefits is utterly fanciful, I believe.

Second, let us understand that the $10-$11 billion numbers also are well understated. The reason is that most of the costs will be applied to older power plants that do not have the official command-and-control devices that newer plants have, so the costs of compliance for these regulations will be concentrated upon those plants, not across the electric power industry as a whole. The correct application of these numbers is not to compare them to all electricity revenues, but rather the revenues that come from the electricity produced at the plants that will be affected.

Most likely, many of those plants would not produce enough revenues to justify the huge costs of compliance, so they would be shut down, and this is EXACTLY what Obama, Jackson, and Krugman want to happen. We are speaking of large portions of the U.S. electricity grid that come from the burning of "demon coal," and there is nothing more than Obama would love to see than Americans to face blackouts, brownouts, and soaring costs for electricity. (That's right; I believe Obama wants this to happen, as he is perhaps the most radical environmentalist -- at least in the Algore category -- to occupy the White House.)

What the EPA and Krugman don't include in the cost category is what happens when people have no electricity at all or are forced to pay substantially more for it. Electricity in a modern society and a modern economy is not a luxury; it is a necessity, and the government's attempts to deprive us of it only will wreak more economic havoc.

Third, what is an EPA directive on attacking "brown energy" without an appeal to the Broken Window Fallacy? Krugman's columns are full of the stuff, and, according to the EPA, this newest directive won't destroy jobs. No, it will create them. The following article notes:

American Electric, based in Columbus, Ohio, said in June that proposed EPA rules would force it to close parts or all of 11 power plants, eliminating 600 jobs. Complying with the rules would cost $8 billion, most of it on cleaning up or shutting plants that lack pollution-control equipment, it said.

The EPA says the rule would save lives and create 9,000 more jobs than would be lost, as power plants invest billions of dollars to install pollution scrubbing systems or build cleaner natural gas plants. It estimates the regulation could prevent 17,000 premature deaths from toxic emissions. (Emphasis mine)

Of course, the EPA has plenty of propagandists in both academe and the media to trumpet this nonsense that these new regulations will create "net jobs," not to mention net wealth. (George Soros is a major funder of Media Matters, and where would a vast network of lies be without his guiding hand?)

Yes, what Krugman and others want us to believe is that if we are forced to use more resources to create LESS wealth, that somehow makes us wealthier and creates more employment opportunities and, thus, creates more income streams for individuals. (Where is that bridge again?)

Krugman's column itself operates on the assumption that mercury is an unregulated toxin, as though there are no rules at all governing the release of mercury into the environment. That clearly is not true. First, mercury discharges into American waterways have been substantially reduced in the past four decades. Yes, I know, Krugman is speaking of mercury now that might enter the water via atmospheric mercury discharges, but nonetheless important strides have been made in that area.

In the end, we see a uniting of environmentalists and Keynesians claiming that wealth destruction is good for the economy, and that all we need to do is have less electricity -- and more freshly-printed money. This is a recipe for disaster.

I need to add that Paul Krugman, along with people like Ben Bernanke and Tim Geithner, are high-IQ people who apparently have not had their brains addled by mercury. Nonetheless, I cannot imagine anyone who is doing more damage to the economies around the world than these Really Intelligent Men who want us to believe that wealth destruction really is wealth creation. Maybe a few doses of mercury might have done them some good.

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I also am reporting very sad news about the recent death of Siobhan Reynolds, the most important voice against the government's war on painkillers, doctors who prescribe them, and those who suffer from chronic pain. I have posted something here.

This is more than just the loss of an ideological partner. Siobhan was my friend and she and her son recently visited us here in Finzel. I am going to miss her very, very much.

And did those statistics pan out after 1990? No, because "acid rain" was not killing anyone, nor was it even responsible for acid lakes.

Scientists from Scandinavia and the USA already had determined that lake acidity was highly correlated with soil acidity and land-use patterns. Acid rain was one of the Big Lies told by environmentalists.

A bit off topic, but remember how after the Japan earthquake, "And yes, this does mean that the nuclear catastrophe could end up being expansionary, if not for Japan then at least for the world as a whole." (check his NYT blog March 15, 2011), and then Carlos Guterol did the fake Krugman, claiming the quake wasn't big enough... remember all that? How could we forget?

So there's the outcome for you: Japanese household spending down 3.2% from last year. Let me guess, Krugman is going to explain this by saying the quake would have been "expansionary" if only it had been a bit bigger?

What are the going odds on Krugman admitting he was completely wrong back in March, and the Austrians were right?

@Tel You clearly do not understand basic Keynesian principles (sound familiar Roddis?). It is not the size of the earthquake but the size of the reaction to the earthquake that matters and whether it can see Japan through the slump due to the earthquake as well as the global crisis.

Tel: @So there's the outcome for you: Japanese household spending down 3.2% from last year.

Of course, consumer spending dropped. There's a global economic crisis, and the people of Japan just suffered a huge shock and are retrenching. Reconstruction from the disaster will be an important factor in demand for the near term.

http://online.wsj.com/article/SB10001424052748703421204576329420414284558.html"Mercury has always existed naturally in Earth’s environment. A 2009 study found mercury deposits in Antarctic ice across 650,000 years. Mercury is found in air, water, rocks, soil and trees, which absorb it from the environment. This is why our bodies evolved with proteins and antioxidants that help protect us from this and other potential contaminants. Another defense comes from selenium, which is found in fish and animals. Its strong attraction to mercury molecules protects fish and people against buildups of methylmercury, mercury’s biologically active and more toxic form. Even so, the 200,000,000 tons of mercury naturally present in seawater have never posed a danger to any living being. How do America’s coal-burning power plants fit into the picture? They emit an estimated 41-48 tons of mercury per year. But U.S. forest fires emit at least 44 tons per year; cremation of human remains discharges 26 tons; Chinese power plants eject 400 tons; and volcanoes, subsea vents, geysers and other sources spew out 9,000-10,000 additional tons per year. All these emissions enter the global atmospheric system and become part of the U.S. air mass. Since our power plants account for less than 0.5% of all the mercury in the air we breathe, eliminating every milligram of it will do nothing about the other 99.5% in our atmosphere. According to the Centers for Disease Control’s National Health and Nutrition Examination Survey, which actively monitors mercury exposure, blood mercury counts for U.S. women and children decreased steadily from 1999-2008, placing today’s counts well below the already excessively safe level established by the EPA. A 17-year evaluation of mercury risk to babies and children by the Seychelles Children Development Study found “no measurable cognitive or behavioral effects” in children who eat several servings of ocean fish every week, much more than most Americans do. The World Health Organization and U.S. Agency for Toxic Substances and Disease Registry assessed these findings in setting mercury-risk standards that are two to three times less restrictive than the EPA’s. The EPA ignored these findings. "

morse79: Yeah I see what you did there with the bloomberg article. Since Japanese exports slowed right down immediately following the disaster and then recovered back to normal levels over the next few months after that, you can make up a big growth figure by taking that brief recovery period on an annualized basis. It's downright dishonest to claim this represents "expansion" in the Japanese economy though isn't it?

Is that the basic Keynesian principle you are trying to teach me? Dishonesty? Don't worry I already know about that one.

As for the "size of the reaction to the earthquake that matters"... well you are welcome to make your predictions about events after they happen, but Krugman quite clearly made a prediction before he knew what the reaction was going to be. That is to say, Krugman presumably understands a few of these Keynesian principles that you mention, and he used these to attempt to understand what was happening in the world -- and he got it wrong. Simple as that.

Zachriel: Sure you can point out some sulphates, big deal that doesn't actually address the point. What Anderson said was: "acid rain was not killing anyone, nor was it even responsible for acid lakes" and the fact that sulphates are measurable says nothing about whether they have a significant effect.

Show me an actual example of an actual lake that has become less acid between 1990 and 2010 (as your diagram shows the sulphate levels went down).

When you say: "Reconstruction from the disaster will be an important factor in demand for the near term," that's just your assertion. Means nothing. If reconstruction spending merely displaces consumer spending (as would be the expected outcome) then it effectively makes people poorer not wealthier.

The very basic stuff is that a disaster is bad for a nation. Strange that it is so difficult to make people understand this.

Tel: It's downright dishonest to claim this represents "expansion" in the Japanese economy though isn't it?

That's exactly what it is. Whether it can sustained depends on a number of factors.

“Japan’s economic growth will remain elevated, mainly on domestic demand,” said Masaaki Kanno, chief Japan economist at JPMorgan Chase & Co. (JPM) in Tokyo and a former Bank of Japan official. “Especially from the first quarter, we expect reconstruction work in the Tohoku region to support the economy,” he said, referring to the northeast region struck by the temblor.

Tel: What Anderson said was: "acid rain was not killing anyone, nor was it even responsible for acid lakes"

Anderson said, "No one had done any such research; the numbers were created from whole cloth," and "Acid rain was one of the Big Lies told by environmentalists."

There *was* research concerning acid rain and deaths. And acid rain due to human emissions *is* well-supported in the scientific literature.

Tel: If reconstruction spending merely displaces consumer spending (as would be the expected outcome) then it effectively makes people poorer not wealthier.

It won't displace consumer spending, which is already reduced.

If your roof blows off during a storm, you either borrow (shift money from the future) or spend savings (shift money from the past) to replace the roof. The loss in wealth wasn't from buying the new roof, which protects your home and its contents, but from the storm.

Tel: The very basic stuff is that a disaster is bad for a nation.

Of course it is. Leaving aside the human toll, it reduces a nation's wealth. However, it can spur economic activity. It can also lead to better designs, designs that account for soteigai.

"If your roof blows off during a storm, you either borrow (shift money from the future) or spend savings (shift money from the past) to replace the roof. The loss in wealth wasn't from buying the new roof, which protects your home and its contents, but from the storm."

All of your examples results in displacing current or future consumer spending.

Also, a quick google search on the article that you wrongly cited above demonstrates that the correct title is:

"Analysis of Health Effects Resulting from Population Exposures to Acid Precipitation Precursors."

H Ozkaynak and J D Spengler

I've emphasized the important word that you neatly removed, thus restoring the article title to its original meaning. It's not about acid rain, it is about sulphate particulate emissions (which may then perhaps go on to create acid rain). Even within that context, the article points out that these studies have their difficulties.

William L. Anderson: In 1991, I was doing research for a paper on the EPA and the 1990 Clean Air Act Amendments and came across a claim by the EPA that acid rain was killing more than 100,000 Americans each year, so that the proposed legislation would then effectively save more than 100,000 lives annually.

Anderson doesn't provide a citation to the supposed EPA claim. It's seems clear they were referring to sulfate pollution, and probably to the study cited above. Anderson probably mangled the EPA statement, but we parsed it the best we could.

However, if Anderson would provide a citation to the EPA claim he is concerned about, then we could check to make sure we have answered his position appropriately. If the EPA is saying that acid rain is melting thousands of people in the streets, then we will reconsider our previous comments.

About Me

I teach economics at Frostburg State University in Frostburg, Maryland. We are located on the Allegheny Plateau, and we have cool summers and tough winters.
I am the single father of five children, four of them adopted from overseas and I have two grandchildren. My family and I are members of Faith Presbyterian Church (PCA).